Competing on price is the symptom of a differentiation gap. B2B deals collapse into price negotiations when buyers cannot tell one vendor from three comparable others. Cost becomes the only deciding factor left. Strategist Alex M H Smith locates the real loss months earlier, when a company stopped creating value its competitors lack. Founders who close that gap stop discounting to win enterprise deals.
Why Do B2B Deals Keep Getting Lost on Price?
Buyers default to price when every option looks equivalent. Alex M H Smith of Basic Arts puts the return from optimizing an already-competent sales function at 5 to 10 percent. Competitors are competent too, so the gain stays small. The deal was decided earlier, by whether the company built value no rival delivers.
About Alex M H Smith
Alex M H Smith is the founder of Basic Arts and the author of No Bullsh\t Strategy*. Each year he advises a small number of founders and chief executives, including work with brands such as Porsche. His question to all of them is the same: what is the one thing only your business can deliver? Most B2B founders answer unpredictable revenue by hiring better salespeople or raising the marketing budget, and the numbers stay flat. Smith argues those moves treat a symptom while the cause sits upstream, untouched. That gap is why so many companies end up competing on price instead of winning on something else.
Table of Contents
What Does Competing on Price Actually Mean?
Competing on price means allowing cost to become the deciding factor in a sale. The phrase covers two situations that behave nothing alike.
Chosen low price is a strategy. Forced discounting is a symptom.
| Chosen low price | Forced discounting | |
|---|---|---|
| Origin | Deliberate operational design | Pressure at the negotiating table |
| Examples | Costco, Southwest, IKEA | Most B2B software deals |
| Requires | Trade-offs rivals refuse to copy | Nothing |
| Margin effect | Protected by cost base | Absorbed by the seller |
| Durability | Hard to replicate | Repeats every quarter |
The first is a deliberate choice. Costco, Southwest, and IKEA all charge less than their rivals. Their low prices are the output of operational trade-offs competitors are unwilling to copy.
Jason Cohen makes the same argument in his essay on why you should sometimes never compete on price.
The second is a default position. A company discounts because the buyer sees no other reason to choose it. That is a differentiation gap wearing the costume of a pricing decision.
In B2B software, the second version is far more common. In the content audits I run for funded B2B companies, it is the version I see almost every time.
Feature parity arrives fast, procurement asks for a comparison, and the shortest path to a discount wins. What starts as one concession becomes a quiet price war nobody declared. If you are weighing how to structure rates in the first place, our guide to SaaS pricing models that convert covers the mechanics.
Competing on price is financially asymmetric. McKinsey research found that a 1 percent price increase lifts operating profit by 8.7 percent when volume holds steady. Run in reverse, a small discount removes a large share of the profit that deal was meant to produce.
Why You Are Really Losing on Price: The Better Trap
Companies end up competing on price for a reason that has nothing to do with effort. The company that outsells you is rarely executing better than you are. Smith calls the opposite belief the better trap.
Founders inside it assume success is a function of execution quality. They ask how to improve the product, the marketing, and the sales process. Each answer produces a real but small gain.
I hear this on most first calls, usually framed as a hiring plan or a bigger budget. The assumption underneath it is that someone else is simply working harder.
Smith puts the ceiling on that work at 5 to 10 percent. The reasoning behind it is uncomfortable for most leadership teams. A business with revenue, funding, and scale already has functions performing well enough.
Optimization cannot fix a positioning problem.
Artificial intelligence has tightened the trap further. Smith argues anyone can now reach a competent standard on most business functions by consulting AI. Baseline competence has stopped separating companies from each other.
That leaves price as the last remaining variable. A buyer facing four capable vendors with four similar answers has one obvious way to choose.
The timing matters more than founders expect. Professor John Dawes of the Ehrenberg-Bass Institute studied this pattern. He found that up to 95 percent of business buyers are not currently in the market.
Dawes treats the figure as a heuristic rather than a fixed law. The exact share depends on how often a category gets repurchased.
Most of the audience judging whether you are distinctive is not buying today. By the time they enter a purchase cycle, the impression has already set.
Competing on price is the visible end of an invisible failure. Alex M H Smith argues the deal was decided months before the negotiation began. Once a buyer sees parity between vendors, cost becomes the only variable left to decide on.
The Only Value You Ever Get Paid For
Escaping competing on price starts with a rule that sounds harsh until you test it. Smith’s version is blunt: any value your competitors also produce is worth zero.
He is explicit that this is a competitive statement, not a customer one. The value is real to the buyer, and it generates no advantage for you.
Every car takes a driver from one place to another. No car brand has ever built a position on that capability.
Smith calls this table stakes value. You must deliver it, or you will not be considered. Then you write it off and look at what sits on top.
Table stakes value earns consideration. New value earns margin.
The layer above the floor is the only thing a company is paid for. Companies competing on price have usually stopped building that layer.
Smith argues most founders never separate the two. They invest heavily in improving table stakes, then wonder why buyers still ask for a discount.
The practical consequence shows up in roadmap decisions. A feature that brings you level with a competitor protects you from losing. It will not, on its own, win you anything.
Most roadmaps I review are full of parity work that nobody has labeled as parity work. It absorbs quarters of engineering time and produces no competitive advantage.
The table stakes distinction is not new to strategy literature. Kevin Lane Keller separated points of parity from points of difference decades ago. Noriaki Kano’s model draws a similar line between expected and delighting attributes.
Alex M H Smith argues that a company producing only what its competitors also produce has, competitively, produced nothing. That is why improving a parity feature rarely changes a win rate, and why teams stuck competing on price often have the busiest roadmaps.
How Do You Differentiate When Your Product Does the Same Thing?
Look outside the product. Teams competing on price usually hunt for differentiation in the one place it is hardest to find. When rivals ship comparable features within weeks, the product cannot stay distinctive for long.
Smith’s alternative is to map every party in the chain. The economic buyer, the channel, the partner, and the internal champion all sit alongside the end user.
Consider his Mars example. Smith describes the confectionery company developing a cheaper way to manufacture bars, then declining to pass the saving to shoppers. Instead, it used the extra margin to buy premium shelf space from retailers.
The chocolate itself was left unchanged. The value was created inside the retailer relationship, where no shopper could see it.
The strongest advantage often sits with a party the end user never meets.
Smith translates this directly to software. Imagine a tool used by a whole company but bought by the HR team. The instinct is to make the product excellent for every user.
Every B2B company I work with has at least three parties in its buying chain. Most have only ever designed for one of them.
The stronger move is to build something that gives the HR team power inside its own organization. The end user experience stays generic. The buyer now has a reason to insist on you.
The buying chain is where B2B differs sharply from the consumer examples that dominate strategy writing. Harvard Business Review describes most purchases as decisions made by groups, each member holding different priorities and veto power.
The signer, the daily user, and the renewal owner often hold three different definitions of value. A position that satisfies one of them decisively can beat a product that mildly satisfies all three. Our breakdown of B2B product positioning works through how to choose which one to build around.
Differentiating in B2B rarely requires a better product. Alex M H Smith argues for identifying which party in the buying chain you can serve as no competitor does. A generic product with a decisive advantage for the economic buyer beats a superior product with none.
Is It a Strategy Problem or an Execution Problem? Run the 3x Test
One question tells you which problem you have. Smith offers a diagnostic that takes an afternoon. Put the leadership team in a room and ask it.
As things currently stand, with nothing changing, what is the likelihood we triple in the next twelve months?
Three answers are possible, and each points somewhere different. If the honest answer is yes, the business is already working. The job is to identify precisely why and concentrate everything there.
If the answer is a qualified maybe, the position is real but underexploited. If the answer is no, Smith treats that as evidence rather than a failure of ambition.
A confident no is a strategy diagnosis, not a morale problem.
The standard is deliberately awkward to meet. He argues every business should be making a play that makes tripling possible, not inevitable. A team that cannot see a path has learned something about the size of its current moves.
The value sits in what happens next. Once a team accepts the current trajectory will not produce the result, the conversation changes. It moves from optimization to invention.
I have watched leadership teams answer this honestly and change direction within a fortnight. The discomfort of the answer is what makes it useful.
Smith’s point is that most companies never hold that conversation at all. They set goals, review performance against them, and keep competing on price without asking why. Nobody asks whether the underlying position could support a different order of outcome.
The 3x test separates a strategy problem from an execution problem. Alex M H Smith proposes asking whether the business could triple within twelve months if nothing changed. A confident no points to competent execution against a position too weak to carry the outcome.
Will Hiring Better Salespeople Fix Competing on Price?
Hiring will not stop you competing on price. A sales team converts demand that a strategy created, and it does not manufacture the reason a buyer should prefer you.
Smith’s position is that a stronger rep selling an undifferentiated product sells it marginally better. The improvement is real and it is small.
A sales hire is the better trap appearing in a specific department. The hire feels like decisive action because it is expensive, visible, and measurable. It leaves the reason for the price conversation entirely intact.
Smith is fair about the exception. Some companies really are executing badly, running no marketing or carrying too few salespeople. Fixing an obvious operational hole does produce a real gain.
The distinction is whether the function is absent or merely ordinary. An absent function is an execution problem worth solving. A competent function that still ends up competing on price is pointing at something upstream.
Ask five people what makes you different. Five different answers is your diagnosis.
The test is simple enough to run this week, and I use it in every engagement. Ask five people on the team what makes the company different from its three closest competitors. Five different answers mean the sales problem starts somewhere else.
Companies that fix this usually find the work sits in strategic positioning rather than in the sales function.
How Founders Make a Position Visible Before Buyers Are Shopping
Finding a position is half the work. Smith argues that strategy is 50 percent deciding what to do and 50 percent motivating people to do it.
He is direct that the second half is largely missing from strategy literature. Companies that dominate their categories are rarely the ones with the cleverest plan on paper.
Smith’s sequence for the second half runs in five steps:
- Socialize it privately. Take the idea one-to-one to the people whose opinions carry weight, before anything is written down or presented.
- Validate it cheaply. A B2B company already pitching every week can implant the new thinking into live sales conversations. Watch whether selling gets easier or harder.
- Narrativize it. Smith reframed one client’s strategy for its team as removing the stress from family mealtimes. The underlying analysis concerned customer lifetime value by age cohort, and the team did not need it.
- Announce the change. Make the new direction a visible moment rather than a quiet memo.
- Invite contribution. Ask each part of the business what it could do to drive the new direction, then build the best answers in.
He states the leadership requirement bluntly. The primary job of a chief executive, in his view, is to be a propagandist. The idea gets repeated until it runs through every employee like DNA.
A position nobody outside the company has heard is not a position.
That repetition cannot stop at the office door. Up to 95 percent of a market is not buying today. The position has to reach those buyers during the long stretch when they are not shopping.
Silence in that window is what leaves you competing on price when they finally are. Smith argues founders should spend their attention looking up and out at their industry, then publish what they see. The formula he offers is simple: everyone in our industry seems to think X, but we think Y, and here is why.
Founder-led publishing is the practical bridge between strategy and pipeline, and it is where I spend most of my time with founder clients. A value proposition that lives only in a leadership deck still leaves the sales team competing on price.
Published consistently under the founder’s name, that same position does the work of differentiation before procurement builds a comparison table. Our guide to LinkedIn ghostwriting for B2B SaaS founders covers how founders sustain that cadence.
Smith is honest about the cost. Founders unwilling to lead visibly can still build profitable companies, though many spend their lives competing on price. He does not think they build strategically dominant ones.
Frequently Asked Questions
What does competing on price mean?
Competing on price means cost becomes the deciding factor when a buyer chooses between vendors. It covers two situations. A company can choose low price as a strategy, as Costco and Southwest do, backed by trade-offs rivals will not copy. More often it means discounting under pressure, which signals a differentiation problem rather than a pricing one.
Is competing on cost the same as competing on price?
Competing on cost and competing on price describe different sides of the same position. Cost is what a company spends to produce and deliver; price is what a buyer pays. A true low-cost operator charges less and stays profitable because its cost base supports it. A company cutting price without that advantage absorbs the difference from its own margin.
What is a better word for competitive pricing?
Market-based pricing is the more precise term for setting prices against competitor rates. Value-based pricing is the alternative, where price reflects the outcome delivered to the buyer. The distinction matters because the two produce opposite behaviors. Market-based pricing keeps attention on competitors. Value-based pricing forces a company to identify what it delivers that no rival does.
What does competition pricing mean?
Competition pricing, also called competitive pricing, means setting your price by reference to what competitors charge rather than your costs or the value delivered. It is common where products are hard to tell apart. The risk is anchoring an entire business to rivals’ decisions. Alex M H Smith argues this is where a company stops making strategic choices.
What is the difference between a business strategy and a goal?
A goal is a destination, such as tripling revenue within a year. A strategy is the specific value you will create that makes the destination reachable. Alex M H Smith argues most companies hold goals and mistake them for strategy. That explains why hiring and spending fail to make revenue predictable, because neither addresses what the business uniquely offers.
Is it ever right to compete on price?
Competing on price works when low price is the output of a strategy rather than a concession. Costco, Southwest, and IKEA all built durable positions on charging less. Each accepted deliberate weaknesses in range, service, or comfort that competitors refused to accept. Discounting to close an individual deal carries none of that structural protection.
How long does it take to fix a differentiation problem?
The decision itself can happen quickly. Smith describes reaching a client breakthrough in roughly two hours of unstructured conversation. The necessary information usually exists inside the company already. Communicating that position through an organization takes considerably longer. Seeing it register with buyers takes longer still, because most of a market is not purchasing today and meets the new position gradually.
What to Do With the Next Price Objection
Competing on price is information, not bad luck. The price objection tells you a buyer compared you against three competitors and found nothing decisive.
A price objection is the receipt for a decision made elsewhere. Alex M H Smith’s argument reframes that moment as the last visible step of a choice made months before.
For B2B tech founders, the implication is awkward, because it points away from the levers most readily available. A sales hire, a larger budget, and a faster roadmap all improve delivery of something the market already treats as ordinary.
The 3x test costs one meeting. It gives an honest answer about whether the current position could carry the outcome the board expects.
The harder part is making a position visible while buyers are not shopping, which is where founder-led publishing earns its place. Sproutworth’s founder ghostwriting work exists to turn a differentiated position into thinking buyers encounter long before procurement builds its comparison table.
The question is not whether your company is differentiated in your own mind. It is whether five people on your team would describe that difference the same way, and whether a buyer has ever heard it. Until they have, you will keep competing on price.
Related Resources
- B2B Product Positioning: How to Stand Out and Drive Revenue Growth: choosing which buyer to build a position around
- Brand Differentiation Strategy: Why 90% Fail: the common failure modes when differentiation is attempted
- How to Use Strategic Positioning to Drive Predictable ROI and Growth: turning a position into an operating decision
- B2B Go-to-Market Strategy for SaaS: the execution sequence once the position is set
Related Links
- Company: Basic Arts
- Newsletter: The Rare Mind
- Book: No Bullsh\t Strategy*
- LinkedIn: Alex M H Smith
Some topics we explore in this episode include:
- Lost deals and unpredictable revenue are caused by poor differentiation, not price.
- Most companies confuse goals with real strategy.
- The ‘better trap’: Trying to outdo competitors instead of being unique.
- Strategic fog at the top leads to confusion in sales and marketing.
- Effective strategy requires motivating and aligning the team.
- B2B value creation is complex with different stakeholders to satisfy.
- Unique value often comes from non-product advantages.
- Strategic breakthroughs happen in informal conversations, not workshops.
- Deliberate weakness enables standout strengths and focus.
- Leaders must relentlessly communicate strategy as companies grow.
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